Momentum - Business to Business Online Magazine MOMENTUM December 2019 | Page 38
T. MARK RUSH, CPA
Partner
Ham, Langston & Brezina, LLP
[email protected]
5 Year-End Business
TAX-DEDUCTION
STRATEGIES
H
ere are five powerful business tax deduction
strategies that you can easily understand and
implement before the end of 2019.
1. Prepay Expenses Using the IRS Safe
Harbor
IRS regulations contain a safe-harbor rule that allows
cash-basis taxpayers to prepay and deduct qualifying
expenses up to 12 months in advance without challenge,
adjustment, or change by the IRS.
Under this safe harbor, your 2019 prepayments cannot
go into 2021. This makes sense, because you can prepay
only 12 months of qualifying expenses under the safe-
harbor rule.
For a cash-basis taxpayer, qualifying expenses include
lease payments on business vehicles, rent payments on
offices and machinery, and business and malpractice
insurance premiums.
2. Stop Billing Customers, Clients, and Patients
Here is one rock-solid, time-tested, easy strategy to
reduce your taxable income for this year: stop billing your
customers, clients, and patients until after December 31,
2019. (We assume here that you or your corporation is on
a cash basis and operates on the calendar year.)
Customers, clients, patients, and insurance companies
generally don’t pay until billed. Not billing customers
and patients is a time-tested tax-planning strategy that
business owners have used successfully for years.
3. Buy Office Equipment
With bonus depreciation now at 100 percent along
with increased limits for Section 179 expensing, buy your
equipment or machinery and place it in service before
December 31, and get a deduction for 100 percent of the
cost in 2019.
Qualifying bonus depreciation and Section 179
purchases include new and used personal property such
as machinery, equipment, computers, desks, chairs, and
other furniture (and certain qualifying vehicles).
4. Use Your Credit Cards
If you are a single-member LLC or sole proprietor
filing Schedule C for your business, the day you charge a
purchase to your business or personal credit card is the
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MOMENTUM
day you deduct the expense. Therefore, as a Schedule
C taxpayer, you should consider using your credit card
for last-minute purchases of office supplies and other
business necessities.
If you operate your business as a corporation, and if
the corporation has a credit card in the corporate name,
the same rule applies: the date of charge is the date of
deduction for the corporation.
But if you operate your business as a corporation
and you are the personal owner of the credit card,
the corporation must reimburse you if you want the
corporation to realize the tax deduction, and that
happens on the date of reimbursement. Thus, submit
your expense report and have your corporation make its
reimbursements to you before midnight on December 31.
5. Don’t Assume You Are Taking Too Many Deductions
If your business deductions exceed your business
income, you have a tax loss for the year. With a few
modifications to the loss, tax law calls this a “net operating
loss,” or NOL.
If you are just starting your business, you could very
possibly have an NOL. You could have a loss year even
with an ongoing, successful business.
You used to be able to carry back your NOL two years
and get immediate tax refunds from prior years; however,
the Tax Cuts and Jobs Act eliminated this provision. Now,
you can only carry your
NOL forward, and it
can only offset up
to 80 percent of
your taxable
income in
any one
future
year.